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Putting the cart before the camel
Sacramento, California, is a hotbed for cannabis. Dozens of medical marijuana dispensaries operate in the city. A local ordinance regulating dispensaries is being drafted, and is expected to be voted up or down by the city council sometime in late 2010. In November, Californians will vote on Proposition 19, a state initiative that would allow localities to tax and regulate cannabis as they see fit. The City of Sacramento has a $43 million budget deficit, and elected officials are eying cannabis revenues to potentially help reduce the city’s debt. At their June 22, 2010 public meeting, the Sacramento City Council signaled wide interest in placing a marijuana tax on the November, 2010 ballot. The pot tax was quietly placed by city staff on the council’s agenda, along with a broader, unrelated tax proposal.
It was an unusually long business day for the council. The entire nine-member council stayed, working without any substantial break, from 2pm until after midnight. Before the night was through, the council would sit through a now-infamous tirade from the mayor. From the beginning of his campaign for office, bigger-than-life celebrity Mayor Kevin Johnson has attempted to change the city charter to give him more power. That night another of his “strong mayor” proposals went down in flames. Mayor Johnson spent a full 30 minutes chastising his fellow council members before they voted 7-2 against his proposal. It was unquestionably a challenging day for the councilmembers.
The marijuana discussion opened with Assistant City Manager Patti Bisharat outlining the new cannabis tax proposals. The sunny Ms. Bisharat then fielded multiple questions from the council on the evolution of the new revenue generating plans.
Several cannabis advocates spoke publicly to the council that day, each of them voicing concerns over the proposed new tax scheme.
Representing the burgeoning local industry trade group the Sacramento Alliance of Collectives (SAC), lobbyist Max Del Real summed up the group’s position. “We want to be taxed. But that tax must be fair, and reasonable.” Several SAC members who also spoke echoed those sentiments, including Caleb Counts of Fruitridge Health & Wellness Center, Jeannie Larson of A Therapeutic Alternative, and Justin Karapetian of Alternative Medical Center. Giving voice to another popular sentiment of the day, Mr. Del Real noted, “I believe we have put the cart before the camel, in the sense that we are talking about better business practices for a business that does not yet exist.”
The ever charismatic attorney James Anthony described his experience with the taxation of Oakland’s medicinal cannabis clubs. “I drafted the first -- and still only -- medical cannabis tax in the modern era on behalf of Oakland’s four licensed dispensaries. We started that discussion with Oakland’s city council at 1.2%, and we compromised with them at 1.8%. It’s important that we respect the philosophical position that medicine shouldn’t be taxed. The political compromise that we made, to enhance our legitimacy and further the cause, was to accept a fairly low tax, and to absorb that into the Oakland dispensaries. This is the first year that we are actually paying that tax, and we’re finding that it is quite burdensome at 1.8%. We’re looking at having to cut free health services to patients, as well as curtail the programs under which we’re able to make medicine available free to low income and fixed income patients.”
Fiery speaker Keith Kimber of California Cannabis Inc. often has strong words for the council, and this time was no exception. “To have the city specifically tax our medicine is akin to a mafia extortion racket,” Kimber said confidently. “Forcing our community to pay money in exchange for being allowed to operate without fear of the city kicking in our doors sounds like a protection racket to me.”
Reed Thomas, Director of Sacramento Holistic Healing Center pointed out, “Over the last three years we’ve developed an extensive compassion program where we give away, at this point, over $10,000 in product to low income or no income patients. An excessive tax would cut back on our ability to serve our patients.”
Councilmember Steve Cohn suggested separating a recreational cannabis tax from a medicinal cannabis tax.
City Attorney Eileen Teichert stated, “I believe that we could articulate a rational basis for differentiating between a rate for recreational verses medicinal.”
Cohn also advised starting with a lower tax rate, and then raising it each year. “Come back with that as an option,” he told city staff, “where we could do the 3, 4, 5% for recreational and have the option of the 1.8 and maybe a 1 point increase each year for the medicinal.”
Councilmember Lauren Hammond confessed, “I was just a little disappointed. I thought the Sacramento Alliance of Collectives is supporting a tax, but from the testimony I heard today, the SAC are not really supporting it. But they would if it was fair, they’re not exactly sure that this one is fair. I noticed the language did not differentiate between medicinal marijuana and recreational marijuana. My only concern with that, other that what I’ve already outlined, is we don’t have a state law yet. So it’s kind of like putting the horse before the cart.”
Councilmember Sandy Sheedy also gave direction to city staff. “I’d like staff to go and work with the stakeholders and to come back to us on the 13th [July 13, 2010], just like you have planned to do with the proposal. I don’t know how much outreach was done on this. I know we had to move quickly, so I’m sure there was not as much as before. But we also have got to get the medical marijuana ordinance enacted. We can’t keep sitting on that and start raising fees on all of this if we don’t have it. We need to do that as soon as possible.”
Ms. Bisharat replied, “We can certainly meet with the stakeholders and come back on the 13th.”
The city did make good on this promise, conducting a stakeholder’s meeting at Old City Hall on July 6th, 2010. Unfortunately, that meeting turned out to be more of a seminar than a workshop. While invited members of the community were permitted to speak, none of the public comments were reflected in the proposal that staff later brought to the council.
During the stakeholder’s meeting, city staff revealed a pair of proposals based on Cohn’s suggestion of a tiered system of tax increases.
The first plan dealt with raising the Business Operations Tax (BOT) for all city businesses, including medical marijuana dispensaries. Under this plan, the taxation rate for dispensaries would jump from .04% to 3% in the first year, 4% in the second year, and 5% in the third year.
The other staff proposal established different taxes for medical and recreational marijuana businesses. Under this plan, the rate for medical marijuana would start at 2% but could be increased to 4% with the council’s approval. Businesses related to recreational marijuana would initially be taxed at 5%, with the option for the city council to later increase the rate to 10%.
These plans were brought unchanged to the city council at their July 13 meeting. It was a somewhat chaotic event that had the unmistakable sense that the proposals were being hurried through.
Right off the bat, the council decided to abandon the plan to increase the BOT on all city businesses. Instead, the council opted to vote only on the taxation of marijuana-related businesses. Then members of the public weighed in.
George Mull, a Sacramento attorney who represents several collectives advised, “I believe what we’re talking about here is premature, and is not necessary – the rate itself, I believe, being 5,000 to 10,000% higher than anybody else. Maybe we could wait and focus on non-medical marijuana, but not try and add a tax to a product that is supposed to be helping people.”
Lanette Davies, representing her dispensary Canna Care, asked, “If you are going to put a 2% tax on cannabis, could you treat this as you do any other business in the city of Sacramento, and put a cap of $30,000, as you were requesting for all the other businesses?”
Keith Kimber shot out, “I’m here to let you guys know that the taxation of medical cannabis is illegal per the highest legislative laws in California, which is the initiative process. ‘Cause in Proposition 215 it specifically says there will be no local or state fiscal effects, because marijuana comes recommended by a doctor. That’s how it was voted on by the voters in November in 1996, so you guys are going to be violating state law there. In SB420, where it gives cities the authority to regulate marijuana it says it has to be consistent with the articles of SB420, and nowhere in SB420 does it give any mention of any taxes, and the only part of any registrations is purely voluntary. Furthermore you guys are gonna basically ruin a good thing we have. The federal government gave us a very small inch, and now you’re wanting to take a mile. It’s a slap in their face. It’s still illegal to do all the things you want on the federal level, and the City of Sacramento may very well become the largest criminal enterprise in the United States if you want to make profits off of weed.”
The former mayor of Sebastopol, Craig Litwin, got specific about his advice, “I think you would be prudent to regulate first, then consider taxing. But if you are gonna move forward with the tax, I urge you to never go above 2%. Go up to 1, maybe 1.5% at the most.”
Joy Cole of the local activist group Sac Patients noted, “The Brown Act suggests that we are to be given this information ahead of time. Friday was the first time this went out, and it went out in the 39-page format. Unfortunately, I am one of those poor people that don’t have computer access all the time. I expected to be able to walk in here tonight and pick up a copy of it, but it wasn’t available before the meeting. You guys have it together enough to have it all typed up -- it’s all ready to rock and roll -- except we didn’t have a chance to look at it. I resent that. I resent the fact that you‘ve got all this ready on taxation, but you haven’t got the regulation done after all this time.”
Max Del Real stated, “I suggest that we move forward with a tax that makes sense. A tax that doesn’t pass the cost on to patients, but a tax that can put needed revenue into our city, our police, and more important, our infrastructure projects. If we go with 2%, I suggest that we stay with 2%, and we don’t raise the tax over the years. We need to focus on an ordinance that earns my clients, and more importantly, your future businesses, a license to operate.”
After listening to public comment, the city council unanimously voted to put the complex cannabis taxation scheme on the ballot for the November 2010 election. If approved by Sacramento’s voters, the new rates will go into effect on July 1, 2011.
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Go Prop 19!
Casey Casseday
Producer, The Green Rush
http://www.greenrushmovie.com
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